Canada’s youth will have more spending power than parents, report says

The point we want to make is as they advance in their careers, their spending power will increase and over their working lives exceed that of their parents

Despite the widespread perception that today’s young people will have it worse off than their parents, BMO has released a report that says the kids should actually be all right.

In terms of real median income, there’s no question that Canadians aged 20 to 24 are earning less income today than those of the same age group in the late ‘70s or early ‘80s. But no one stays 20-years-old forever, Sal Guatieri, senior economist and vice-president of Economic Research at BMO Capital Markets, said.

“Young people from an income perspective are worse off than their parents when you just consider how much spending power they have right now,” he said. “But the point we want to make is as they advance in their careers, their spending power will increase and over their working lives exceed that of their parents.”

The typical 20-year old today living to age 79 could expect to achieve spending power that is higher than his/her counterpart in 1976

There has been a significant growth in real median income over the past two decades in Canada, the report showed.

Since 1996, real median income has turned higher for all age groups, rising 18% to 2010; the annual gain of 1.2% was more than twice that in the United States during this period.

“This upward trend in income should continue, albeit at a slower pace in the near term, as the economy returns to full employment next year,” Mr. Guatieri added.

“Assuming only modest growth in real median income, the typical 20-year old today living to age 79 could expect to achieve spending power that is higher than his/her counterpart in 1976.”

BMO’s report says the increase in median income corresponds with an upward shift in labour compensation which increased 24% since 1996 – about seven-times faster than in the previous 15-year period.

More of that income could be used for servicing debts, student debts, bigger mortgages. It’s a question of earning more money but what do you do with that money

So the kids should be all right — that is, if we don’t drown ourselves in debt.

Since the Great Depression it has been an expectation — a given — that your children will be better off than you and that they will certainly live longer; but Canadians have been chowing down on credit like never before and the burden of student debt has grown to an average of almost $28,000.

That takes on average 14 years to pay it off based on an average starting salary of $39,523, a RateSupermarket.ca survey said.

“Young people can expect to earn higher real incomes and more spending powers than the previous generation; more of that income could be used for servicing debts, student debts, bigger mortgages. It’s a question of earning more money but what do you do with that money?” Mr. Guatieri said.

He looked at the eldest Generation Y Americans and compared them to their Baby Boomer parents. He found that young families in the last decade have struggled more with debt, joblessness and had less free time than the previous generation. But on average, they are wealthier, earn and consume more and have higher living standards.

“When we looked at the U.S. data, we found that yes, debt has gone up in recent decades compared to when your parents were young. But assets have also gone up. Their wealth has gone up relative to their parents of the early 80s,” he said. “A lot of that was because house prices have gone up over this period and now they’ve come down. We don’t know whether this is also the case in Canada.”

Common laments among Gen Yers are that they are over-educated and unable to find jobs in this competitive market. Mr. Guatieri pointed out that there is a correlation between length of education and lifetime earnings; also, more job openings will become available over the next two to three decades as Baby Boomers leave the labour force.